METRO-GOLDWYN-MAYER STUDIOS, INC. V. GROKSTER, LTD.U.S. Supreme Court, 2005FACTS: Metro-Goldwyn-Mayer Studios, Inc (“MGM”) sued Grokster and Streamcast, alleging that these distributors of peer-to-peer software are legally responsible when their customers use the software to engage in copyright infringements. The studio sued for an injunction and monetary damages. The District Court granted summary judgment in favor of the defendants on the grounds that MGM would not be able to prove liability even if all its allegations were true. The Ninth Circuit Court of Appeals affirmed this ruling, and MGM appealed to the U.S. Supreme Court.DECISION AND REASONING: This case involves a tense balance between two values: (1) supporting creative pursuits through copyright protections and (2) promoting innovation in new communication technologies by limiting the incidence of liability for copyright infringement. Defendants argue that imposing liability, not only on direct infringers but also on distributors of software based on its potential for unlawful use, could restrain further development of beneficial technologies. The argument for imposing indirect liability in this case is, however, a powerful one, given the number of infringing downloads that occur every day using the defendants’ software.This Court has only addressed indirect liability in one recent case, Sony v. Universal City Studios. In that case, the principal use of the VCR was for time-shifting, which the Court found to be a fair use. There was no evidence that Sony had expressed an object of bringing about taping in violation of copyright or had taken active steps to increase its profits from unlawful taping. With those facts, the only conceivable basis for imposing liability on Sony was on a theory of contributory infringement arising from its sale of VCRs to consumers with knowledge that some would use them to infringe. But because the VCR was capable of commercially significant noninfringing uses, we held the manufacturer could not be faulted solely on the basis of its distribution. This doctrineabsolves the equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and limits liability to instances of more acute fault than the mere understanding that some of one’s products will be misused. It leaves breathing room for innovation.The Ninth Circuit read Sony to mean that whenever a product is capable of substantial lawful use, the producer can never be held contributorily liable for third parties’ infringing use of it; it read the rule as being this broad even when an actual purpose to cause infringing use is shown by evidence independent of design and distribution of the product, unless the distributors had specific knowledge of infringementat a time at which they contributed to the infringement and failed to act upon that information. Because the Ninth Circuit found that the defendants’ software was capable of substantial lawful use, it concluded that neither company could be held liable, since there was no showing that their software, being without a central server, afforded them knowledge of specific unlawful uses. This view of Sony, however, was an error.Sony’s rule limits imputing culpable intent from the characteristics or uses of a distributed product. But nothing in Sony requires courts to ignore evidence of intent if there is such evidence, and the case was never meant to foreclose traditional rules for finding fault. Where evidence goes beyond a product’s characteristics or the knowledgethat it may be put to infringing uses, and shows statements or actions direct to promoting infringement, Sony’s rule will not preclude liability.The classic case of direct evidence of unlawful purpose occurs when one induces commission of infringement by another, or entices or persuades another to infringe. In this regard, evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, are pertinent to show an affirmative intent.We are mindful of the need to keep from trenching on regular commerce or discouraging the development of technologies with lawful and unlawful potential. Accordingly, mere knowledge of infringing potential or of actual infringing uses would not be enough here to subject a distributor to liability. Nor would ordinary acts incident to product distribution, such as offering customers technical support or product updates, support liability in themselves. The inducement rule, instead, premises liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful promise.The record is replete with evidence that the defendants, unlike the manufacturer and distributor in Sony, acted with a purpose to cause copyright violation by use of software suitable for illegal use. Three features of this evidence of intent are particularly notable. First, each company aimed to satisfy a know source of demand for copyright infringement by attempting to attract former Napster users. Second, the fact that the defendants never attempted to develop filtering tools underscores their intentional facilitation of infringements. Although this evidence, by itself, would not be sufficient, it is relevant in conjunction with other factors indicating unlawful intent. Third, the defendants make money by directing ads to the screens of computers employing their software. The more the software is used, the more ads are sent out and the greater the advertising revenue becomes. The commercial sense of their enterprise turns on high-volume use, which the record shows is infringing. Again, this evidence alone would not justify an inference of unlawful intent, but viewed in the context of the entire record, its import is clear. The unlawful objective is unmistakable.In sum, this case is significantly different from Sony and reliance on that case to rule in favor of defendants was error. If liability for inducing infringement is ultimately found, it will not be on the basis or presuming or imputing fault, but from inferring a patently illegal objective from statements and actions showing what that objective was.There is substantial evidence in MGM’s favor on all elements of inducement, and summary judgment in favor or defendants was error. On remand, reconsideration of MGM’s motion for summary judgment
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